Pathetic demand for two real estate investment trust IPOs today speaks to continued worries that commercial mortgage-backed real estate may be the next leg of the financial stool to get kicked out from under the market.

Colony Financial (Nasdaq: CLNY) and Apollo Commercial Real Estate Finance (NYSE: ARI) each roughly halved their stock offerings today. They had been expected to raise about $900 million, but together they will now raise only $450 mln.

Along with a third REIT IPO expected to price Tuesday, Foursquare Capital Corp. (Nasdaq: FSQR), the three IPOs each plan to invest heavily in the CMBS market, with help from loans offered by federal programs including the TALF and PPIP.

All three are betting on market timing. The argument is that very low volumes in the wake of the real estate bust has resulted in great CMBS values, particularly in the lower tranches of the market. The IPOs seek to use experienced managers who can navigate a low-vol market where the banks still fear to tread. They will seek long-term deals that give favorable spreads over borrowing costs.

In theory, the IPOS may be an opprtunity for the REIT investors, too. The last big REIT boom was in 1990, just when the California real estate bubble burst was bursting. And between the end of 1990 and the beginning of 1995, REITs gained nearly 1.5-fold. But there may be good long-term fundamental reasons why banks continue to steer clear. In Q2, commercial loan delinquencies were still climbing. And the commercial property prices continue to fall, down nearly 40% from the 2007 peak. And in almost every U.S. geography, commercial occupancy and rental rates continue to drop.

All of that speaks to the worries of fixed income traders that CMBS could become the epicenter of the next financial contagion, resulting in higher TED spreads and greater systemic risk across all asset classes.

Even for hedge funds who might want to dabble in the lower tranches of CMBS, a deeper look into the S-11 filings of the IPOs provides reason for pause. Each of the three IPOs are starting from scratch with a newly organized financial company that will be externally advised by a manager. The CEOs and investment managers will have decades of market experience. But unlike most every IPO, there is no existing balance sheet, income statement or record of cash flows. There’s not much of a track record on paper.

For the two that halved their offerings, there may be deeper concerns. A look at Apollo reveals that there is no formal policy limiting the amount of debt the IPO may incur. And the board can change that leverage policy without shareholder consent. In the case of Colony, the manager it has hired has no experienced managing a public company, and only limited experience managing REIT assets.

All told, professional investment managers may see the new IPO REITS as a lose-lose situation. They provide big exposure to a market many managers still won’t touch.

And the skilled hedge funds brave enough to delve the lower-tranche depths of CMBS may be better served doing so on their own.

24/7 Wall St. editors

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